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Doing good
Business and the sustainability challenge

Sponsored by:
A. T. Kearney, Bank of America,
Orange, Jones Lang LaSalle,
PricewaterhouseCoopers, SAP
and ExxonMobil, SunGard
Doing good
                                                                      Business and the sustainability challenge


Doing good: Business and the sustainability challenge     ● to supplement the survey results, we also
is an Economist Intelligence Unit report that                 conducted in-depth interviews with 28 executives,
investigates the impact of sustainability on business         including CEOs and sustainability chiefs, as well
today. Lead sponsors of the programme include                 as other leading experts from international
A. T. Kearney, Bank of America, Orange, Jones Lang            organisations, consultancies, non-governmental
LaSalle, PricewaterhouseCoopers and SAP, along with           organisations and academia. A full list of
supporting sponsors ExxonMobil and SunGard.                   interviewees is detailed on the next page;
    The Economist Intelligence Unit bears sole            ● finally, an extensive programme of desk research
responsibility for the content of this report. Our            was conducted, including a wide-ranging literature
editorial team executed the online survey, conducted          review.
the interviews and wrote the report. The findings and     Dr Paul Kielstra was the author of the report and
views expressed within do not necessarily reflect the     Gareth Lofthouse and James Watson were the editors.
views of the sponsors.                                    Sarah Murray also contributed. We would like to thank
    Our research draws on three main initiatives:         all the executives who participated in the survey and
● we conducted a wide-ranging global survey               interviews for their time and insights.
    of senior executives from around the world in
    September and October 2007. In total, more than       February 2008
    1,200 executives, half of them from the C-suite and
    26% of them CEOs, took part. They represented a
    cross-section of industries and a range of company

                                                                           © The Economist Intelligence Unit 2008   1
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    Business and the sustainability challenge

    (Listed alphabetically by organisation name)

    Dr Hameed Bhombal, CTO, President of Corporate                 Jane Nelson, Director of the CSR Initiative,
    Technology Strategy and Services, Aditya Birla                 Harvard’s Kennedy School of Government
    Roland Waardenburg, Director of Corporate Social               Adrian Hodges, Managing Director, International
    Responsibility, Ahold                                          Business Leaders Forum
    Edward Bickham, Executive Vice President, External Affairs,    Francesca DeBiase, VP, Worldwide Supply Chain
    Anglo American                                                 Management, McDonald’s
    Michael Prideaux, Director, Corporate and                      Bob Langert, VP, Corporate Social Responsibility,
    Regulatory Affairs, BAT                                        McDonald’s
    Professor Pan Jiahua, Executive Director, Research             Bart Alexander, Global VP, Alcohol Policy and Corporate
    Centre for Sustainable Development, Chinese Academy            Responsibility, MolsonCoors
    of Social Sciences                                             Jing Ulrich, Chairman, Chinese Equities, JP Morgan
    Dr Gail Kendall, Director, Group Environmental Affairs,        Daniel Vasella, CEO, Novartis
    CLP Group
                                                                   Pierre Poret, Head, Investment Division, OECD
    Carl Kitchen, Public Affairs Manager, CLP Group
                                                                   Ivo Menzinger, Group Head of Sustainability and Emerging
    Ed Potter, Director of Global Workplace Rights, Coca-Cola      Risk Management, Swiss Re
    Dr James Suzman, Director of Corporate Citizenship,            John Elkington, Founder and Chief Entrepreneur,
    De Beers                                                       SustainAbility
    Tod Arbogast, Director of Sustainable Business, Dell           Alan Rosling, Executive Director and Board Member,
    Doug Cahn, Chairman, Fair Factories Clearinghouse              Tata Group
    Tony Juniper, Executive Director, Friends of the Earth UK      Georg Kell, Executive Director, United Nations
    Mark Kramer, Founder, FSG Social Impact Advisors, and          Global Compact
    Senior Fellow, Harvard’s Kennedy School of Government          Bjorn Stigson, President, World Business Council for
    Julian Garrido, CFO, GE Latin America                          Sustainable Development
                                                                   Jill Brady, General Counsel, Virgin Atlantic

      Doing good: Business and the sustainability challenge        Participants represented a range of company sizes, with
      is an Economist Intelligence Unit research programme         53% from firms with at least US$500m in revenue; 22%
      that investigates the impact of sustainability on business   were from firms with revenue of at least US$5bn. The full
      today. A total of 1,254 executives around the world par-     breakdown of survey respondents can be found in the
      ticipated in the survey. Half of all respondents were from   appendix, starting on page 46.
      the C-suite. Roughly 27% of respondents were based in
      Asia, 33% in western and eastern Europe, 33% in North        Please note that not all figures quoted correlate precisely
      and Latin America, and 7% in the Middle East and Africa.     with the charts provided, typically because of rounding.

2   © The Economist Intelligence Unit 2008
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              Business and the sustainability challenge


Executive summary                                                             4
Doing good: Ten lessons for corporate leaders

Chapter 1 Sustainability: What is it, why now, and why us?                    8
Corporate leaders are now spending more time dealing with issues
relating to sustainability and corporate social responsibility. Climate
change is one of several catalysts, along with concerns about energy
security and booming megacities—not to mention globalisation.
Case study The Quakers, social responsibility and profit                     11

Chapter 2 Priorities and drivers                                             13
In line with wide-ranging concerns about climate change, more firms
are focusing their efforts on environmental issues than anything else.
Influences vary around the world, but companies worry most about what
customers and governments think—and what rivals do.
Case study Business and NGOs: A changing relationship                        18

Chapter 3 How is business doing?                                             20
Few companies are bullish about their sustainability performance. For
most, it is a new challenge, with little in the way of best practice yet
established. Supply chains and sustainability reporting, amongst other
things, will be bending minds as executives pick up their efforts on this.
Case study Learning to share: The Fair Factories Clearinghouse               26
Case study Anglo American’s approach to social impact                        30

Chapter 4 Does sustainability pay?                                           31
A new opportunity that can drive business growth? Or yet another drag
on the bottom line? Businesses grappling with sustainability issues are
starting to find some unexpected results.
Case study View from 30,000 ft: Virgin Atlantic                              38

Chapter 5 What will deliver: Markets or regulation?                          39
Can markets alone deal with these issues, or do governments need
to step in?

Conclusion                                                                   42

Appendix: Survey results                                                     43

                    © The Economist Intelligence Unit 2008                    3
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    Business and the sustainability challenge

    Executive summary

    Being a good corporate citizen has never been                 beyond internal operations to encompass their supply
    so challenging. Companies have long been                      chains. In all, less than one in three executives (29%)
    under public scrutiny for practices ranging from              say their company has a coherent strategy that covers
    recruitment to workplace safety, from attitudes to            the whole business and its supply chain. Uncertainty
    overseas investment to environmental pollution.               also lingers as to whether sustainability can be seen as
    The emergence of climate change as a mainstream               an opportunity, or if it is merely another drag on the
    political issue, however, has served to drive home the        bottom line.
    breadth of ethical issues with which firms must now              To investigate this, and to assess the impact of
    grapple. The business—and societal—implications of            sustainability on business today, the Economist
    how companies address these are so far reaching that          Intelligence Unit drew on a wide-ranging survey
    a new area of management practice has come into               of over 1,200 executives worldwide, along with
    being to manage them, known by many as “corporate             numerous in-depth interviews with leaders of
    sustainability”.                                              businesses and non-governmental organisations
        Accordingly, grasping the nature and scope of the         (NGOs) as well as other sustainability experts. Other
    sustainability challenge—as well as best practice in          key findings from the study include the following:
    addressing the attendant opportunities and risks—is
    of immense importance to the corporate community.             Business knows that it needs to raise its
    However, this report suggests that companies are at           game… Out of a list of 16 sustainability policies,
    an early stage in developing such an understanding.           encompassing issues ranging from energy
    While 53% of firms worldwide surveyed by the                  consumption and carbon emissions to diversity and
    Economist Intelligence Unit claim to have a coherent          governance, companies surveyed for this report had
    sustainability policy, only half of these extend this         implemented an average of just 4.8 globally. Quantity

      Defining sustainability                                     and other resources on which the company involved
                                                                  depends for its long-term health. Sustainability is the
                                                                  result of having such sustainable policies and processes,
                                                                  and aligning them so that goals in one area are not com-
      According to Timothy O’Riordan, Emeritus Professor at       promised in favour of those in another. This is really just
      the School of Environmental Sciences, University of East    an elaboration of the Bruntland Commission definition,
      Anglia, defining sustainability is like “exploration into   which posits that sustainable development is that which
      a tangled conceptual jungle where watchful eyes lurk at     “meets the needs of the present without compromis-
      every bend”. The number of definitions available, how-      ing the ability of future generations to meet their own
      ever, gives each publication the freedom to advance its     needs”. Obviously, the practical implementation of the
      own, as a courtesy to readers if nothing else. This study   definition will vary across industries, geographies and job
      has called sustainable those policies and processes which   functions, because at the core sustainability is an under-
      enhance the financial, environmental, societal, human,      lying approach rather than a definitive list of activities.

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                                                                      Business and the sustainability challenge

aside, many executives also rated the quality of         chains. “This is not charity: it is pure business. We
their company’s efforts poorly. More respondents         create a better long-term relationship with suppliers,
say that their organisation’s performance has been       have better products, and better control over volume
poor in individual areas of sustainability, than those   and price,” says Roland Waardenburg, Director of
who believe their firms are doing well. Just 6% rate     Corporate Social Responsibility at Ahold.
their companies as outstanding when it comes to the
reduction of greenhouse gases, waste and pollution,      Many companies lack clear leadership on
compared with 15% who describe themselves as             sustainability. Tony Juniper, an Executive Director
poor. One exception is communication: talking about      at Friends of the Earth, who has seen numerous
whatever programmes they have in place is something      corporate sustainability programmes, says “senior
most companies feel they do well.                        management or chief executive buy-in to the agenda
                                                         is absolutely crucial” for real change to occur.
…but is often confused by such new and poorly            Most firms understand that senior leadership is
defined demands. Companies are still figuring out        critical here: one-third of surveyed companies place
what sustainability means for their business and how     responsibility for their sustainability performance
to implement it. The research shows that companies       directly with the CEO—and a further 26% place it with
have difficulty devising useful targets, and aligning    the board. But at many other firms sustainability
social and environmental objectives with financial       responsibilities are dispersed throughout the
ones. Moreover, management frequently lacks an           organisation, and 11% of companies admit to having
understanding of what sustainable development            nobody in charge. “Sustainability needs a strong seat
means for the organisation. No small factor here is      at the table like procurement and finance,” argues
a lack of consensus on what sustainability entails.      Francesca DeBiase, VP for Worldwide Supply Chain
“Sustainability, at different times, can mean all        Management at McDonald’s. “It is the way everyone
things to all men,” says Dr James Suzman, Director of    should be thinking.”
Corporate Citizenship at De Beers.
                                                         Sustainability reporting needs more work. Although
The supply chain is the weakest link. Extending          companies rate their performance on communication
sustainability policy to suppliers is the area where     highly, efforts regarding formal reporting are less
companies gave themselves the worst marks: about         advanced. Only 22% of executives say their firms
one-fifth say their companies have performed poorly      have formal Triple Bottom Line reporting, although
in setting stronger supplier standards on both           a further 40% say they will adopt it within five years.
environmental and human rights issues. About the         There is, in Mr Juniper’s words, “a huge level of
same proportion have only implemented supplier           disengagement” from sustainability reporting.
controls in the last five years. The problem is not
new, and examples of disastrous consequences             Sustainability does pay. Most executives (57%) say
from socially or environmentally damaging supply         that the benefits of pursuing sustainable practices
chains abound. “Every CEO should be asking, after a      outweigh the costs, although well over eight out
decade of work in implementing codes of conduct,         of ten expect any change to profits to be small.
‘Why haven’t we fixed the problem?’” argues Doug         Specifically, sustainable practices can help reduce
Cahn, Chairman of the Fair Factories Clearinghouse.      costs (particularly energy expenditure), open up new
Besides, firms can gain from improving their supply      markets and improve the company’s reputation. Part

                                                                           © The Economist Intelligence Unit 2008   5
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    Business and the sustainability challenge

    of this involves a shift away from defensive behaviour     and environmental challenges. Another 50% say
    towards more active exploration of the opportunities       that voluntary action is generally more effective,
    sustainability can present. Some of these gains can        but that additional regulation may be required in
    be dramatic. GE’s line of Ecomagination products           some areas. However, this openness to new rules is
    added US$12bn to its bottom line in 2006. The costs        combined with the desire for clearer guidance about
    of implementation, however, are not to be ignored:         what government expects from business. Nearly two-
    respondents view this as the most formidable barrier       thirds (62%) of respondents agree that “uncertainty
    to expanding sustainability practices.                     over government policy is making it difficult to plan
                                                               strategies for corporate sustainability”. The irony is
    There is a link between corporate sustainability           that politicians appear to be looking to business to
    and strong share price performance. In our survey,         deliver the goods. “Governments are proponents of
    companies with the highest share price growth              market solutions, and business is saying we want some
    over the past three years paid more attention to           regulation,” notes Bjorn Stigson, President of the
    sustainability issues, while those with the worst          World Business Council for Sustainable Development.
    performance tended to do less. Causality is difficult to   “From the outside, it can look pretty confusing.”
    establish, but the link appears clear: the companies          The social and environmental issues facing
    that rated their efforts most highly over this time        companies today are not going away—and are likely
    period saw annual profit increases of 16% and share        to involve a redefining of relations between business
    price growth of 45%, whereas those that ranked             and society. This often involves fundamental political
    themselves worst reported growth of 7% and 12%             and even moral questions. A good sustainability policy
    respectively. In general, these high-performing            needs to know when, and why, to say “no” as well as
    companies put a much greater emphasis on social and        “yes” to stakeholders’ innumerable demands. “If you
    environmental considerations at board level, while         don’t know your magnetic north, then the compass is
    the poorly performing firms are far more likely to have    useless,” says Mr Stigson.
    nobody in charge of sustainability issues.                    Companies need to adjust by integrating best
                                                               practices in these fields into their operations and by
    Business leaders are open to more regulation on            joining the broader debate on the responsibilities of
    social and environmental issues. Executives in our         business, government and individuals in addressing
    surveys are often opposed to increased regulation.         these challenges. If firms do not get involved in the
    Not here. Forty percent of those in our survey believe     latter, it will hurt their own finances, as well as the
    additional regulation is necessary to tackle social        environment and social conditions worldwide.

6   © The Economist Intelligence Unit 2008
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                                                                             Business and the sustainability challenge

                                                                                                 companies are integrating their supply
Doing good: Ten lessons for corporate leaders                                                    chains into their sustainability policies. Just
                                                                                                 as with the financial side of operations, poor
The experience of companies in the                centrating on what an organisation does        performance by suppliers here can harm a
sustainability field yields some important        best. Immediate demands might inevitably       company’s sustainability record—and very
insights.                                         draw you into areas a business does not        quickly its public reputation—while a sus-
                                                  know thoroughly, but it is wise for firms to   tainable supply chain can greatly enhance
1. Work smart, not hard. Sustainability does      consider where they can make the greatest      an organisation’s ability to deliver its own
not involve a simple checklist of activities,     impact. A consultant, rather than planting     high social and environmental performance.
but an alignment of social, environmental         trees, would probably do better to help an
and financial goals. However, in our survey,      organisation already doing that to run more    8. Monitor and report. “When you say you
the companies pursuing the largest number         efficiently.                                   will do something and you communicate
of sustainability-related policies were not                                                      it, you ought to measure it,” says Daniel
necessarily those who ranked their perform-       5. Ask not just what your company can do       Vasella of Novartis. Finding information and
ance in this area highest. Quality counts.        for sustainability; ask what sustainability    metrics is not easy, but too few companies
                                                  can do for your company. Sustainability        are even trying. Existing reporting guide-
2. Know thyself. Successful sustainability        need not be a burdensome imposition            lines are not definitive solutions, but they
programmes are based on companies figur-          from outside. Taking account of social and     do provide a place to start.
ing out what they think is right and acting       environmental issues can lead to extensive
accordingly, rather than running after            innovation that cuts costs in the long run.    9. Integrate. Sustainability will not work
(often shifting) public demands. Distilling       At its best, it can open the way to new mar-   as an add-on. It needs to be integrated into
corporate values is an essential first step. As   ket opportunities and prepare the company      corporate structures and processes. Such
Bjorn Stigson, President of the World Busi-       for the growing risks in these areas. Ivo      change can be hard to manage, but is a key
ness Council for Sustainable Development,         Menzinger, Group Head of Sustainability        element of getting this right. Although some
says, “If you don’t know your magnetic            and Emerging Risk Management at Swiss          problems are sufficiently novel that new
north, then the compass is useless.” A good       Re, stresses that firms “need to approach      procedures and tools will be necessary to do
sustainability policy needs to know when to       sustainability from a business angle … there   so, companies should not forget traditional
say “no” to campaigners.                          are environmental and social trends that       techniques of encouraging positive behav-
                                                  will be relevant”.                             iour. Mark Kramer, Founder of FSG Social
3. Know thy impact. A good assessment of                                                         Impact Advisors, explains: “Until it affects
what sustainability issues a company should       6. Have clear leadership and board-level       somebody’s compensation and performance
be addressing requires an accurate idea of        support. Sustainability will not just hap-     reviews, it won’t appear as a serious priority
how company activities are affecting those        pen. Success in these areas requires that      for middle management.”
around it. These need not be negative.            somebody be responsible for sustainability
Moreover, such analysis should include all        issues. Moreover, wherever that responsi-      10. Engage. Sustainability is about the
aspects of the Triple Bottom Line—environ-        bility is placed in the corporate structure,   relationship of business to other elements
mental, social and financial. Too often com-      environmental and social priorities must       of society. This means that a successful
panies forget the last, but as Jane Nelson,       have unequivocal support from the board,       company will frequently cooperate with a
Director of the CSR Initiative at Harvard’s       CEO and other senior management. Roland        range of stakeholders, including NGOs, that
Kennedy School of Government, points out,         Waardenburg, Director of Corporate Social      might on other occasions campaign against
“the greatest business contribution to soci-      Responsibility at Ahold, notes that without    it. It also means engaging in public debates
ety is creating wealth”.                          such back-up from his CEO, “I wouldn’t do      about the appropriate content and limits of
                                                  my job, because it wouldn’t make sense any     corporate social and environmental poli-
4. Focus on your core strengths. Just as          more.”                                         cies. This may not always be comfortable,
with the financial side of company opera-                                                        but it will contribute both to the success of
tions, good performance comes from con-           7. Remember your supply chain. Too few         business and of the sustainability agenda.

                                                                                   © The Economist Intelligence Unit 2008                          7
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                        Business and the sustainability challenge

                        Chapter 1:
                        Sustainability: What is it, why now, and why us?

Key points                     hree seemingly unconnected news stories            lists include financial, environmental and social
                               appeared towards the end of 2007: a large          sustainability. The OECD Guidelines for Multinational
● There is a general
sense of confusion             multinational clothing company faced criticism     Enterprises, a useful effort to provide advice on
about the definition    for deaths at a supplier factory in the developing        state-of-the art best practice in this field, focuses on
of sustainability.
                        world; a major oil company’s presence in a country        Disclosure, Employment and Industrial Relations,
It means different
things to different     known for human rights abuses came under the              Environment, Combating Bribery, Consumer Interests,
firms and varies        spotlight after another military crackdown on dissent;    Science and Technology, Competition, and Taxation
across industries and
regions                 and Al Gore and the Intergovernmental Panel on            and has provisions on general policies in such areas as
                        Climate Change (IPCC) won the Nobel prize for their       human rights and supply chain management. The UN
● Climate change
is the key concern      efforts to disseminate knowledge about climate            Commission on Sustainable Development identifies
today, but the          change, while the US Congress debated legislation         over 40 relevant issues, including such disparate areas
underlying driver
is the changing         regulating greenhouse gas emissions.                      as “Mountains” and “Health”. Ed Potter, Director of
roles of business,          Although distinct issues, all are part of a multi-    Global Workplace Rights for Coca-Cola, notes that at
governments and
                        faceted challenge that companies are approaching          the theoretical level “sustainability is unbounded”. Dr
other stakeholders
in the wake of          with increasing seriousness—sustainability. Georg         James Suzman, Director of Corporate Citizenship at De
globalisation           Kell, Executive Director of the United Nations Global     Beers, agrees: “Sustainability at different times can
                        Compact, a multi-stakeholder, corporate responsibility    mean all things to all men.” In practice, it seems liable
                        initiative, describes interest in the field as being      to mean anything that a business affects, or that
                        on a “total upswing”. It is a view that executives        affects a business, that is not purely financial.
                        interviewed for this report consistently echo.                A better approach than making lists is to examine
                            As will be seen, however, companies are often         the ideas behind the terminology. Jane Nelson,
                        bewildered in their response to these issues. That        Director of the CSR Initiative at Harvard’s Kennedy
                        confusion is understandable when something as             School of Government, explains that part of the
                        basic as what to call the challenge sparks debate.        problem is historical. “You are getting convergence
                        “Sustainability”, “sustainable development”,              of similar but somewhat disparate fields,” she says.
                        “corporate social responsibility” (CSR), “corporate       Sustainability or sustainable development started
                        responsibility”, and even old-fashioned “corporate        out as a largely environmental concern, which has
                        citizenship” are all terms used, often interchangeably,   increasingly embraced both economic and social
                        with different parts of the world exhibiting their own    dimensions, whereas the origins of CSR, especially in
                        preferences. CSR has fallen out of favour among some      the United States, are in corporate philanthropy. Both
                        Europeans because of associations with previous           spread to encompass the other and more besides. The
                        failures, whereas in parts of the US “sustainability”     boundaries, however, remain fuzzy. “Many companies
                        has anti-corporate connotations.                          have a sustainable development or environment,
                            For companies, the specific content of the            health and safety function and a CSR function,” Ms
                        term—this study uses “sustainability” without any         Nelson notes.
                        anti-business intent—is even more daunting. Most              An early, oft-used definition for sustainability

   8                    © The Economist Intelligence Unit 2008
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                                                                               Business and the sustainability challenge

comes from the Report of the World Commission on           from sustainability policies relate to improved
the Environment and Development, the Brundtland            business outcomes: the ability to attract and retain
Commission: “Sustainable development is                    customers (named by 37% of respondents) and
development that meets the needs of the present            improved shareholder value (34%). The third was
without compromising the ability of future                 straightforward increased profit (31%).
generations to meet their own needs.” The original
focus was on the environment: development that             Time to care
destroyed or exhausted essential natural resources         Sustainability may have a long history, but why is the
was inappropriate. Bjorn Stigson, President of the         concept gaining traction in boardrooms now? The
World Business Council for Sustainable Development         immediate impetus is closely tied to specific worries
(WBCSD), explains that in the late 1990s the concept       over global warming. John Elkington, Founder and
of sustainability started to include corporate social      Chief Entrepreneur of the consultancy SustainAbility,
responsibility, including governance in the wake of        and coiner of the term “Triple Bottom Line”, notes
scandals such as Enron’s. The thinking, however,           that interest in this area comes in waves—this,
remained consistent. Just as behaviour that destroys       he says, is the fourth since the 1960s. He sees the
the physical environment on which business relies is       particular concerns driving interest as energy security,
unsustainable, so too are activities that tear at social   climate change and the growth of megacities. The
structures and stakeholder relationships equally
essential for long-term survival.                          What are the biggest benefits that your organisation expects to
   CSR’s evolution was different. Adrian Hodges,           derive from adopting sustainable practices beyond those of
                                                           compliance (if any)? Please select up to three items.
Managing Director of the International Business            (% respondents)
Leaders Forum, a group working to enhance business’s       Ability to attract new customer base/retain existing one
contribution to sustainable development, argues                                                                                             37
                                                           Improved shareholder value
that corporate involvement in the community some                                                                                       34

20 years ago amounted mostly to philanthropy.              Increased profitability
“The main driver used to be the personal interests         Ability to identify and manage reputational risks
of the chairman or, more often, of the chairman’s
                                                           Better quality products and processes
wife.” From there, CSR “has moved through a long                                                                            28
                                                           Ability to attract best quality employees
continuum to where today leading companies are                                                                         26
looking at aligning business strategy with societal        Improved relations with regulators/legislators making it easier to operate
needs and working hard to eliminate negative               Greater attractiveness to investors as a whole
operational impacts.” This approach, which now                                                   17
                                                           Networking with NGOs, governments, international organisations
includes environmental responsibility, helps with          will create links helpful in addressing other issues
stakeholder and risk management, as well as the
                                                           Reduced exposure to targeted taxes/regulatory load
search for new business opportunities and competitive                            10
                                                           Ability to be listed on ethical/low carbon indices
advantage.                                                         3
   Mr Hodges and Mr Stigson both present this history      Other
in a way that emphasizes the element of enlightened        No benefit expected beyond compliance with regulation
self-interest in sustainability. This certainly has                        6
                                                           We are not adopting sustainable practices
some appeal to modern business. For example, the                       4

two most frequently cited benefits that firms expect       Source: Economist Intelligence Unit survey, October 2007.

                                                                                       © The Economist Intelligence Unit 2008                    9
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                     Business and the sustainability challenge

“[CSR] has moved through a long               first two are related, and have       the proximate cause. For decades now, globalisation
continuum to where today leading              clearly become greater political      and trade liberalisation have changed the relative
companies are looking at aligning             and popular concerns in the wake      positions of companies, governments and other
business strategy with societal               of extreme weather events and the     stakeholders in society. Today’s sustainability agenda
needs.”                                       release in 2007 of the IPCC report,   is a continuation of the ongoing attempt to redefine
Adrian Hodges, Managing Director of the       which indicated a very broad          the roles of each to address the challenges facing
International Business Leaders Forum          scientific consensus that humans      societies (see box Globalisation and sustainability).
                                              are causing climate change and
                        that this is likely to have a serious impact on the         Business and morality
                        planet unless action is taken. Business is not blind to     These issues are often political, and ultimately
                        the implications. According to our survey, the leading      complex moral ones, such as what companies’ duties
                        area of activity in the past five years, and one of the     are to the communities in which they operate. For this
                        most widespread priorities for the near future, is          reason, most executives interviewed for this report
                        energy use reduction. Sometimes the change is more          felt that their sustainability strategy has to start with
                        dramatic: Hurricane Katrina, for example, sparked a         principle, not profit. “CSR means different things to
                        thoroughgoing change in how Wal-Mart approaches             different people, depending on, for example, culture,
                        sustainability, particularly in environmental areas,        religion, geographic location, or position in a value/
                        but also in social ones.                                    supply chain,” says Mr Stigson. “In considering what
                           Climate change, although very important to the           you should do as a company, it really comes down
                        current interest in sustainability, is in many ways just    to your own values. If you don’t know your magnetic

  Globalisation and                               link between liberalisation, global             important and yet more difficult to apply
                                                  integration and growing “expectations           consistently high ethical standards to
  sustainability                                  about business doing more or differently”.      business. Different markets give rise to
                                                      The issue was not just about increased      different responsibilities and expectations.
  Several executives interviewed for this         business influence in the wake of               Mr Bickham notes that in Anglo American’s
  report point to globalisation as the reason     globalisation, but also a simultaneous          British operations, “apart from being
  why sustainability has become an                decline of state power. “A lot of business      environmentally responsible and treating
  increasingly important issue for businesses.    risks and opportunities exist because of        employees properly, our contribution is
  Edward Bickham, Executive Vice President of     governance gaps or failures or because of       largely met by paying and treating our
  External Affairs at Anglo American, thinks      changing boundaries and expectations of         people decently, investing and paying our
  the issue goes back to the fall of the Berlin   government roles,” says Jane Nelson of          taxes.” He believes their responsibilities are
  Wall and the disappearance of a mainstream      Harvard’s Kennedy School of Government.         different in the poorer countries, however,
  alternative to capitalism. As globalisation     “So many of these issues are trans-boundary     where the capacity of the government to
  accelerated, opportunities for business         and would have been the role of government      deliver sustainable outcomes is low, and
  increased—but so did worries that               in the past. This is not to suggest that        consequently the requirements placed on
  companies need to be more accountable.          business should be taking responsibility for    business are much greater. Stakeholders are
  Dr James Suzman of De Beers dates a             all these issues, but in today’s increasingly   knocking on business’s door not only for the
  broader sociological shift to the same          complex and interdependent global               problems firms might be causing, but also
  period, which resulted in companies having      economy there is a need to re-negotiate         because companies may simply be the only
  to meet new obligations in order to operate     boundaries and burden-sharing between the       ones capable of solving other pressing social
  on a global basis. Georg Kell of the United     public and private sector.”                     and environmental difficulties for which
  Nations Global Compact also sees a strong           Globalisation has made it both more         they bear no direct responsibility.

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                                                                                Business and the sustainability challenge

north, then the compass is useless.” Daniel Vasella               everything starts with setting the right values.
of Novartis, believes that the essential first step in               These days it is hard to escape the need for
this area is to “explore what your beliefs are and to             companies to crystallise their thinking on values.
act in accordance with them”. Julian Garrido, CFO at              Michael Prideaux, Director for Corporate and
GE Latin America, and Bob Langert, VP for Corporate               Regulatory Affairs at British American Tobacco
Social Responsibility at McDonald’s, also insist that             (BAT), the world’s second-largest tobacco company,

  Case study                                                         housing, gardens, sports facilities and Saturday half-
                                                                     day holidays. In the early 1900s, they and the Rown-
  The Quakers, social responsibility
                                                                     trees were among the first to set up worker pensions.
  and profit                                                         Quaker employers might in retrospect seem at times
                                                                     highly patronising, but, compared to the alternative,
                                                                     that was a small price for contemporary workers to pay.
  The correct conduct of businesspeople in society, and the
  link between social responsibility and profit, are not new      By the standards of today, did this eccentric behaviour
  questions. The case of the Religious Society of Friends—        have any impact on the financial bottom line? As with
  the Quakers—provides interesting insights into modern           modern sustainability, it certainly did not hurt. Although
  sustainability questions.                                       Quakers in Britain never numbered more than 60,000,
      As a group, the Quakers go back to the mid-17th             Mr Walvin notes that by 1900 it would have been easy
  century. Originally blocked from entering the professions,      to organise much of material life “around the products
  many went into trade and later manufacturing. Their             and services of a number of Quaker commercial enter-
  dress, language and close links with each other certainly       prises. Financial transactions could have been conducted
  set them apart within business and society, but so too          through a number of Quaker banks (most notably Lloyds
  did a number of traits, based on their beliefs, that would      or Barclays), confectionery was to be had from a range of
  hearten the modern corporate social responsibility (CSR)        Quaker manufacturers (Huntley and Palmer, Carrs, Rown-
  executive.                                                      tree, Fry or Cadbury), and shoes could be purchased from
  ● They were known, even by critics, for exemplary hon-          Clarks.” These were merely the most noted Quaker firms,
      esty. James Walvin, a leading historian, concludes          which had an influence on British business completely
      in The Quakers: Money and Morals, “Their produce            out of proportion to the group’s size.
      was sound, their prices fair, their services honest,           As with those firms that best exemplify sustainability
      their word good and their agreements honourable.”           today, the Quakers were not ethical in order to make
      Although important today, such behaviour was even           money, but they did what they saw as right and, either
      more so in previous centuries when bank regulation,         despite or because of this, grew rich. The irony is that
      for example, was poor at best, and adulterated food-        their money made them thoroughly uncomfortable—their
      stuffs all too common.                                      precepts encouraged plainness, not luxury. As a result,
  ● Quakers avoided even highly profitable sectors that           even more wealth made its way to helping society.
      they deemed immoral, such as the arms industry and          For example, Quaker businessmen were among the
      the slave trade—including, for a time, the closely asso-    biggest backers of the anti-slavery movement—with
      ciated sugar trade.                                         both time and money—and for the past century Joseph
  ● They treated their employees very well by the stand-          Rowntree’s three independent charitable trusts have been
      ards of the day, both because it was the right thing        campaigning on a series of social issues worldwide.
      to do and because they thought it likely to increase           In the long term, honesty, integrity and loyalty to
      productivity. The Cadburys, at their Bournville facility,   one’s values are clearly no obstacles to financial success—
      in the second half of the 19th century provided decent      whether you want it or not.

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                     Business and the sustainability challenge

                        remembers that early on in its efforts in this area,        attacked.” Similarly, Mr Langert feels that, although it
                        “stakeholders were asking us what our business              is important to listen to all sides on tough issues, “it is
                        principles were. It hadn’t occurred to us that people       very difficult to satisfy all the constituents. We want to
                        would want that, but … we went out and developed            feel that we are doing the right thing.”
                        them.”                                                          Inevitable disagreements over moral issues
                            Morality, philosophy and values, however                means that “sustainability” is becoming a term
                        important, cause most businesses to tread warily.           like “democracy”—everyone warmly supports the
                        Some companies can draw on the religious precepts           idea, but defines it differently. The contest over
                        of founders and owners, such as Zoroastrianism              content is ongoing and could have profound effects.
                        at India’s Tata Group, or Quakerism at C&J Clark,           Jonathan Porritt, Chairman of the UK’s Sustainable
                                             the British shoe company (see          Development Commission—the government’s
“In considering what you should              case study The Quakers, social         independent watchdog in the area—wrote in a British
do as a company, it really comes             responsibility and profit). Mr         newspaper, The Guardian, in November 2006 that
down to your own values. If you              Hodges cites a study showing that      almost by definition arms companies and cigarette-
don’t know your magnetic north,              the biggest driver of sustainability   makers could not be sustainable. Mr Prideaux notes
then the compass is useless.”                among Latin American small and         of BAT that “we’re very welcome in mainstream
Bjorn Stigson, President, World Business     medium-sized enterprises (SMEs)        sustainability and CSR fora”, but the company is
Council for Sustainable Development          is the “values of the family member    barred from anti-smoking ones. Mr Hodges thinks
                                             who started the business”. Most        that ultimately “society will work through what is
                        modern multinationals, though, avoid a specific faith       acceptable and isn’t acceptable. This is a question
                        or ideology: if discussing religion is problematic for      of changing values.” In the past, he adds as an
                        dinner guests, it can be fatal for sales or recruitment     illustration, slavery was considered acceptable.
                        efforts.                                                        The debate over values and what is morally
                            Trying to rely on some broad sense of popular           acceptable may be an uncomfortable one for
                        morality that will satisfy consumers, however, is           business. As Mr Vasella points out, “Something we
                        also fraught with difficulty. Popular mores can             have not been trained to do in business schools
                        change rapidly and be inconsistent within the same          is how to [engage in] dialogue with peoples with
                        country, let alone around the world. Ms Nelson notes        other beliefs.” Too much is at stake, however, not
                        that “even with the best intentions in the world,           to engage. At the very least, companies need to be
                        companies have fifty different stakeholders telling         part of the discussion on how far, if at all, current
                        them fifty different things”. Mr Vasella believes           public concerns about climate change should affect
                        “one needs to be open, but not run after fashion”.          a range of social issues as well. The future of whole
                        Acting sustainably, he believes, is never easy. “There      sectors, which could find their social and legal
                        are a variety of stakeholders—shareholders, NGOs,           licences to operate fading away, may depend on it. So
                        the media, politicians—they all have an agenda.             too may the solution of many of the world’s pressing
                        These agendas are not identical, and are sometimes          environmental and social problems. As Tony Juniper,
                        contradictory. You enter into conflict whatever you         Executive Director of the environmental NGO Friends
                        do. Unless you stand behind what you really believe,        of the Earth UK, notes: “We need business to be
                        you will not be sustainable because you will be             engaged in this in a positive way.”

12                   © The Economist Intelligence Unit 2008
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                                                                         Business and the sustainability challenge

Chapter 2
Priorities and drivers

       ompanies are not philosophical academies             by sector. Respondents from the construction               Key points
       but practical enterprises. How is the push           and agricultural industries, for example, gave a
                                                                                                                       ● Environmentally
       towards sustainability changing the way they         higher priority than the average to every one of           focused actions
do business?                                                the sustainability issues listed. Respondents in the       account for the bulk of
   Overall, business is looking at sustainability           latter were particularly concerned about local affairs,    companies’ activities

challenges across the board, rather than focusing           whether social (68% ranked it an important priority)       ● Global guidelines
                                                                                                                       may be set, but how
narrowly. Our survey asked respondents to rank              or environmental (67%). Beyond the general, certain        these translate into
the importance of a range of sustainability-related         individual sectors also have specific concerns. Energy     local initiatives will
                                                                                                                       vary widely
goals at their firms. Around one-half considered the        industry respondents are far more likely to place
following activities as very important: improving the       importance on issues such as energy efficiency (67%),      ● Customers and
                                                                                                                       governments are
environmental footprint of products (57%); improving        greenhouse gas emission reduction (63%), and               two key influencers
energy efficiency (52%); developing new products to         even—given their frequent need to obtain supplies in       globally. Much less
                                                                                                                       consideration is given
help reduce social or environmental problems (51%);         poorer countries—helping governments to promote
                                                                                                                       to developing-world
and improving the impact of operations on surrounding       sustainable development in countries of operation          customers
local communities and environments (both 50%). At           (56% compared with an average of 39%). Similarly,
the top of the agenda, however, is communicating this       retailers are much more concerned than average with
performance to investors and stakeholders (61%), an         environmental and human rights issues in supply
issue which is discussed later in this report.              chains (54% for both), which can directly affect sales,
   It is equally interesting to note which activities are   and less so with developing new products (35%), a task
ranked by executives as being of lower importance.          they usually leave to others.
Surprisingly, only around 40% of respondents see                Such diversity is hardly surprising. Ivo Menzinger,
greenhouse gas reduction as an important priority.          Group Head of Sustainability and Emerging Risk
Given the interest of the public and politicians,           Management at Swiss Re, notes that the implications
businesses should almost certainly put more focus           of these issues will obviously vary by industry, with
here. Says Roland Waardenburg, Director of Corporate        an insurance company and a manufacturer of wind
Social Responsibility at Ahold, “It would be wise to        turbines seeing different opportunities and risks. The
work on this. In the long term you get penalties if you     variations should not, however, obscure the broader
don’t; in the short term you can reduce your costs          message of the survey: a large number of companies
while doing the right thing for the environment.            across all industries attach importance to a wide-
A perfect example of how profit and planet can go           ranging list of sustainability initiatives.
together.” Companies also seem to be focusing on
getting their own houses in order. Supply chain issues      Same planet, different perspective
are a less common concern, whether they relate to           Different vantage points lead companies to take
the environment (35%) or human rights (34%), a              different approaches to sustainability. As Mr Kell
potential blind spot also discussed later.                  of the Global Compact says, the push for corporate
   The practical content of sustainability also varies      sustainability is “now truly a global phenomenon”.

                                                                              © The Economist Intelligence Unit 2008                   13
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     Business and the sustainability challenge

     How much of a priority will the following objectives be within your company over the next five years?
     (% respondents, only those selecting “leading priority” or “major priority” are shown)
                                                                                                                                        Leading priority    Major priority
     Communicating your organisation’s performance on sustainability to investors and stakeholders
                                                                       24                                                                                            37

     Improving the environmental footprint of existing products/services (eg, use of recycled materials, reducing packaging and waste)
                                                                  21                                                                                       36

     Developing new products that help reduce or prevent social or environmental problems
                                                             20                                                                         31

     Improving energy efficiency across global operations
                                                        19                                                                                 33

     Acting to enhance the impact of the organisation on the communities around operations
                                                15                                                                                 36

     Improving the local environment around operating facilities
                                               14                                                                             36

     Reducing greenhouse gas emissions and/or waste/pollutants
                                          13                                                         26

     Working with governments to promote sustainable development in the countries you operate in
                                     12                                                              27

     Implementing stronger controls over suppliers on human rights standards
                                11                                                            24

     Implementing stronger controls over suppliers on environmental standards
                            9                                                                 26
     Source: Economist Intelligence Unit survey, October 2007.

     That does not mean it is uniform. Instead, local                                     Although other companies are a universal concern,
     implementation can make sustainability appear                                    thereafter the picture gets complicated. Companies in
     more like a mish-mash of concerns that happen to be                              Asia-Pacific are more influenced by policymakers than
     headed in the same direction.                                                    any other stakeholders and also than respondents
        Values and cultural norms vary from region to                                 from elsewhere. Quite simply, the government is
     region, sometimes even between or within countries.                              often the most active player in this region. Speaking
     So do the drivers of sustainability. Our survey asked                            about China, Jing Ulrich, Chairman of Chinese
     respondents to name the three stakeholders that would                            Equities at JP Morgan, says that “thus far the state
     have the biggest effect on their sustainability policies.                        is leading sustainability efforts”. Government has
     Worldwide, government policymakers, customers and                                intervened to close some of the worst polluters and
     competitors all featured, but with notable differences                           to designate several larger firms as industry leaders.
     in emphasis (see chart on next page).                                            These leaders have been rewarded with access to
        Competitors are a broadly shared concern, and                                 capital and state assets, “but in return have greater
     the most pressing in North America. Mark Kramer,                                 responsibilities in terms of best practice,” says Ms
     Founder of FSG Social Impact Advisors, a non-profit                              Ulrich. Dr Hameed Bhombal, CTO and President of
     organisation working with corporations and other                                 Corporate Technology Strategy and Services at Aditya
     stakeholders in this field, explains that existing                               Birla, one of India’s largest conglomerates, also
     sustainability efforts have changed the playing field:                           notes that the environmental regulations he faces are
     “It used to be easy to say that you can’t do anything                            tightening surprisingly quickly. As the figures show,
     because of competitive pressures. You can no longer                              consumers are not irrelevant in Asia either, although
     argue that it is impossible for business to do this                              developing-world customers are generally given less
     because many have.”                                                              consideration than those in the developed world. Even

14   © The Economist Intelligence Unit 2008
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                                                                                Business and the sustainability challenge

in China, Professor Pan Jiahua, an environmentalist       Which of the following will have the greatest influence over your
                                                          sustainability strategy over the next five years?
and Executive Director of the Research Centre for         (% respondents)
Sustainable Development of the Chinese Academy                           All customers                          Competitors
of Social Sciences, notes that domestic pressure on                      Developed-world customers              Developing-world customers
                                                                         Government policymakers
companies is seeing “a much, much faster change           World
than expected. The general public seem to be                                                                                      46
empowered to report to the authorities. Companies                                                                                 46
seem to care more about their social images.”                                    15

Nevertheless, the key concern remains the state.          Western Europe
   In western Europe, meanwhile, consumers are seen                                                                                    49
as the most powerful stakeholders of all in driving                                                               37

sustainability concerns. Mr Waardenburg of Ahold, for                           14

example, reports that his company usually acts ahead      North America
of any new regulations. To help the supermarket chain                                                             37
set its specific sustainability priorities, it consults                                                                       45
customer opinion broadly. Francesca DeBiase, VP for
Worldwide Supply Chain Management at McDonald’s,          Asia-Pacific
says that her company did a similar exercise in Europe,                                                   32
which it is now expanding to other regions. “It is fair                                                                 41
to say that Europe leads the way in the sustainability
                                                          Source: Economist Intelligence Unit survey, October 2007.
discussion. This is simply because the European
public, including NGOs, the government and the
media, is more sensitive to sustainability and, in
general, to a company’s inter-linkage with society.”      developing-world consumers among their top three
   Arguably, consumer behaviour and government            influences.
action usually arise, directly or indirectly, out of         If companies worldwide were facing varying
popular opinion, whether exercised through the            degrees of pressure from governments, consumers
marketplace or electoral choices. The relatively          and competitors, the results might not be that
small direct impact attributed to the media and NGOs      different. Complicating matters is that popular
on companies (cited by 20% and 13% respectively           opinion varies by region. Even on an issue where
overall) is on the surface a surprise. Their undoubted    agreement is growing, such as climate change, Mr
influence comes through their effect on consumers,        Stigson of WBCSD notes that, in very broad brush
voters and regulators (see case study Business and        strokes, Americans are more
NGOs: A changing relationship).                           amenable to technological             “It used to be easy to say that
   There is one caveat to the importance of popular       fixes, Europeans to tougher           you can’t do anything because of
views worldwide—some people are more equal than           regulations that might hurt the       competitive pressures. You can no
others. Location may explain why customers in the         economy, Japanese to voluntary        longer argue that it is impossible
developing world—where two-thirds of the world            agreements, and Chinese and           for business to do this because
lives—are a leading factor for so few North American      Indians to solutions that recognise many have.”
(11%) or west European companies (14%). Even for          their needs to alleviate poverty.     Mark Kramer, Founder of FSG Social Impact
Asia-Pacific businesses, however, only 18% place          “It is a very broad range of          Advisors

                                                                                      © The Economist Intelligence Unit 2008                          15
Doing good
     Business and the sustainability challenge

     mindsets out there.”                                        less active on climate change, they have probably
         Going beyond climate change, the variety of views       been doing more in the area of financial compliance
     is even greater, often arising out of different levels      post-Enron. The general reputation of the country’s
     of development and state ability. Mr Garrido of GE          business sector as a “laggard” on Triple Bottom Line
     notes that in Latin America the growth of the middle        accounting is, in his words, both true and not true.
     class is changing expectations about areas ranging          “It is certainly true at the rhetorical level, but if you
     from healthcare to water use. Dr James Suzman of De         look at the functioning of North American companies,
     Beers believes that “it is fairly widely accepted, when     there is quite a lot of history of community outreach
     operating in Sub-Saharan Africa, that [Adam Smith’s]        and concern about how people are treated.” When
     invisible hand may be invisible because it isn’t there.     he started at MolsonCoors, Mr Alexander found that
     It is hard to avoid the need to engage with societal        a lot of sustainable behaviour had already been
     issues in a progressive way.” Gail Kendall, Director        internalised. Many sustainability-related activities
     for Group Environmental Affairs at CLP Group, the           have “been done by a lot of companies, but just not
     Hong Kong-based power company, says the group’s             pulled together and labelled as CSR”.
     fundamental dilemma is “how to provide energy that is           Even in terms of broader benefits that companies
     legitimately needed, and at the same time be good on        see from the sustainability agenda, the story can
     climate change. Even our mainstream environmental           be quite different in regional or country-specific
     stakeholders agree that there has to be a role for a fuel   contexts, according to Mr Kell. For some Chinese
     like coal, and that people in countries like India are      firms, it is assumed to be a necessary part of wanting
     entitled to development.” She adds that local Chinese       to operate on a world stage; in Egypt, “businesses see
     stakeholders are looking less at emissions and more         it as a platform of modernisation, a counterweight” to
     on education and an improvement in living standards.        those wanting to return society to an earlier time; and
     In India, Aditya Birla’s social activities in 3,700 rural   in more developed economies it is often adopted by
     communities accordingly focus on development, with          companies that want to maintain leadership.
     programmes addressing issues including education,
     health and women’s rights.                                  Regional priorities
         As Mr Bickham of Anglo American noted of Britain,       How are these differences playing out in corporate
     in developed countries environmental stewardship,           behaviour? Perhaps because of climate change,
     behaving decently to stakeholders and obeying               Europe has a reputation of being much more advanced
     the law is sufficient to address most concerns on           on these issues. Our survey suggests a more complex
     sustainability. However, even developed countries           picture, with Asia-Pacific companies rating themselves
     have their differences. As Mr Menzinger of Swiss            highly. There is an impression that foreign companies
     Re says, “It shouldn’t matter in theory what your           are leading sustainability efforts in the region—most
     setting looks like, but it still does.” He remembers        members of the China Business Council on Sustainable
     a former Swiss Re CEO saying that “being Swiss,             Development, for example, are multinationals based
     with Swiss characteristics, and having the glaciers         in Western countries. Our survey figures indicate,
     retreating, could have been one of the factors why          however, that even domestic companies in this region
     we became alert to climate change so early”. Bart           claim to be as active in environmental and social
     Alexander, Global VP for Alcohol Policy and Corporate       areas as those elsewhere. As Ms Ulrich says of China,
     Responsibility at MolsonCoors, believes that although       “Sustainability is a major concern here. It is certainly
     US companies and regulators have generally been             not considered just a Western issue.”

16   © The Economist Intelligence Unit 2008
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